Sasol’s cost-containment strategies yield results

Lameez Omarjee

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(Biznews)

Johannesburg – Sasol’s [JSE:SOL] restructuring programme, implemented as far back as 2012, aimed to reduce cost sustainably and has helped make the group more efficient, according to chief financial officer Paul Victor.

He was speaking at an interview with Fin24 following the group’s financial results announcement for the year ended June 30 2016 at its head office in Johannesburg. The results were impacted by the falling oil price, but Sasol managed to boost its production volumes.

“Sasol is quite profitable at $40 per barrel,” said Victor. Despite being impacted by the falling oil price, Sasol managed to boost its production volumes. In the past, the company would have been profitable at a higher oil price.

Victor said the group’s ability to sustain profits was due to contingency plans undertaken to deal with declining oil and chemical prices and a weakening currency.

“We anticipated the oil price would come down, but we did not anticipate that it would come down that low,” he said. When the declining trend persisted, the group revised targets. Victor likened it to training for a marathon and then readjusting one’s training to meet a higher target. Sasol has managed to deliver what he termed “robust” results, despite low oil prices.

The group’s response plan targets were adjusted in March this year. Its cash conservation target range is expected to be between R65m and R75m up until 2018, said joint chief executive Bongani Nqwababa. This year, the group managed to save R28.2bn - R12bn more than the target set originally for 2016. The response plan’s cash flow contribution is expected to be between R15bn and R20bn in 2017.

Since implementing the plan in 2015, the group has managed to save R37.1bn. The group’s business performance enhancement programme yielded R4.5bn worth of savings - R500m more than the original target, said joint chief executive Stephen Cornell. The programme's savings target for 2018 is expected to be R5.4bn.

Victor explained that the group developed its cost containment strategy in a way that ensures it can execute its capital projects, such as the Mozambique production sharing agreement and the Lake Charles Chemical Project in the US while still maintaining its dividend policy.

Dividends per share dropped by 20% from R18.50 in 2015 to R14.80 in 2016, while capital expenditure was up 56% from R45.1bn in 2015 to R70.4bn in 2016. Capital expenditure is estimated to be R75bn for 2017 and R60bn for 2018.

"Our balance sheet is strong and has sufficient flexibility,"said Nqwababa. The company is able to manage its gearing and credit rating, to support growth plans and yield value to shareholders, he explained.